Helium Rises to Highest Since 1995 in Fallout From Shale Boom

By Jacob Adelman -
Jan 30, 2013

Helium prices in the U.S., the
world’s biggest producer, are trading at the highest level since
at least 1995 as the shale boom exacerbates a shortage of the
gas used in everything from semiconductors to medical equipment.

Private buyers paid an average $6.13 a cubic meter in the
12 months through September, up 6.2 percent from the previous
year, the U.S. Geological Survey said in a report on its website
yesterday. U.S. helium output from natural gas declined 6.3
percent from four years earlier to 75 million cubic meters,
according to the report. World production slid 1.1 percent.

Surging prices are causing Toshiba Corp. (6502) to use less in
semiconductor production while Siemens AG (SIE) invests in ways to
reduce its need in magnetic resonance imaging technology. U.S.
output is shrinking even as supplies of natural gas, the source
of most helium, rise an average of about 4 percent a year.
That’s because shale deposits, which made up almost a third of
U.S. output last year, yield almost none.

“This is certainly consistent to the pricing pressure we
are seeing as an end user,” said Tom Rauch, sourcing manager
for General Electric Co. (GE)’s health care unit, the world’s biggest
maker of magnetic resonance imaging machines, which are built
using the gas. “Demand has exceeded supply.”

Iwatani Corp. (8088), a Japanese importer of the gas, forecasts
prices will continue to rise as much as 20 percent a year for
the foreseeable future. Industrial-grade processed helium sells
in Japan for as much as 2,000 yen ($21.90) a standard cubic
meter, Takanori Yokoyama, a spokesman for Iwatani, said in an e-
mail in December.

Japanese Chipmakers

Chipmakers use the gas to cool semiconductor wafers during
manufacturing, while it’s also used to keep the magnets within
MRI machines cool enough for the medical body scanners to
operate. Japan, the biggest importer, consumed about 7.5 percent
of the estimated 6.3 billion cubic feet used worldwide in 2012,
according to data from J.R. Campbell & Associates in Lexington,
Massachusetts.

“There’s no other gas you can use that would be cheaper,”
Geoff Haire, head of chemical equity research at HSBC Bank Plc
in London, said by phone before yesterday’s report. “The
industries don’t really have a choice. They’re just going to
have to pay more for it.”

Toshiba, the world’s second-largest maker of flash-memory,
which is made with semiconductors, is preparing for a shortage,
the company said in an e-mailed response to questions.

“We recognize the supply of helium will stay tight,” the
company said, adding that it’s not yet having trouble sourcing
the gas. “We are continuously taking measures including
diversifingy suppliers and reducing the amount used.”

Siemens, GE

Siemens, based in Munich, Germany, has moved to MRI
machines that recycle helium rather than boil it off, and
continues to dedicate part of its research and development
budget to developing that technology, Matthias Kraemer, a
Siemens spokesman, said in an e-mail. General Electric has also
transitioned to the zero boil-off devices, as it works to
develop machines that can be sustained with less helium or using
other gases, said Rauch, who is based in Wisconsin.

The shortage hasn’t just impacted high-tech production in
Japan. Tokyo Disneyland stopped selling balloons featuring
images of Mickey Mouse and other cartoon characters on Nov. 21
after its supply of the gas was cut off, said Tsutomu Kato, a
spokesman for Oriental Land Co. (4661), which owns the Disney resort.

“It’s not a matter of the price being high,” Kato said.
“There physically just isn’t any gas available.”

Global Consumption

Global helium consumption was 6.3 billion cubic feet in
2012, up 3.3 percent from 6.1 billion cubic feet in 2007, said
Maura Garvey, a market research director for J.R. Campbell.

“Everything that’s produced is consumed,” she said.

The estimated price paid by private buyers has risen 48
percent from as little as $4.15 in 2008 and is up from $1.80 in
1995, according to the U.S. Geological Survey. Production of
natural gas was forecast to increase 17 percent during that
period to an estimated 23.7 trillion cubic feet last year,
according to data from the U.S. Energy Information
Administration dated June 2012.

Shale gas contains virtually no helium because its
molecules are small enough to pass through the porous rock
formations containing the fuel, according to Richard Clarke, a
helium and cryogenics consultant in Oxford, England. Gas
produced conventionally in the Texas panhandle, the U.S.’s
biggest helium-producing area, is about 0.3 percent helium, he
said.

Hydraulic Fracking

“The more shale gas production there is, the more diluted
the helium is,” Clarke said before the release of the U.S.
government data. “It just makes it more difficult to access
helium.”

An estimated 7.67 trillion cubic feet of U.S. natural gas
was extracted using hydraulic fracturing, or fracking, of shale
rock in the U.S. last year. That’s 17 times more than a decade
earlier, according to the EIA, which forecast production will
reach 13.6 trillion cubic feet in 2035, accounting for 49
percent of gas output.

“The fracking mining that has become such a boom in the
U.S. and Canada yields virtually no helium gas,” Rauch said
previously. “It’s just a matter of finding sources that are
high enough in helium content to make it economically viable to
refine.”

The market is also being affected by uncertainty over the
future of the Bureau of Land Management’s helium reserve near
Amarillo, Texas, which supplies about 30 percent of the world’s
annual supply, Clarke said. Legislation is being considered in
Washington that would determine the future of the reserve, which
was established as part of the government’s 1925 Federal Helium
Program, a plan to provide a steady stream of the gas for
military blimps.

Qatar Helium

Some demand could be satisfied this year with the start of
the so-called Ras Laffan Helium 2 plant in Qatar. The facility
is designed to produce 1.3 billion cubic feet a year, 20 percent
of which is contracted to Iwatani.

A unit of Taiyo Nippon Sanso Corp. (4091), a gas distributor, is a
partner in a new helium plant in western Wyoming that will
produce 200 million cubic feet when it begins operations this
year, Miho Nakamura, a Taiyo Nippon spokeswoman, said in an e-
mail. Half of that helium will belong to Taiyo Nippon and its
U.S. subsidiary, Matheson Tri-Gas Inc., Nakamura said.

Matheson also signed a memorandum with Gazprom OAO (GAZP) in
December to commercialize helium reserves in East Siberia, the
companies said in a joint statement.

“As helium costs rise each year, we pass the increases
along to our customers as much as possible,” Nakamura said.
“With existing plants expected to continue cutting production,
we constantly have to pay close attention to the acquisition of
new sources.”